Harmonic Drive Systems is a manufacturer of mechanical components featuring compact precision speed reducer Harmonic Drive®, a strain wave gearing device, as its core product. In addition to producing and selling precision speed reducers with different mechanisms, such as the planetary gear reducers AccuDrive® and Harmonic Planetary®, the company sells mechatronics products that combine actuators and controllers. Its reducers, along with other devices such as servomotors and linear guides, are among the key devices used for precision positioning. To date, HDSI has accumulated production know-how, and there is no other manufacturer that can mass-produce strain wave gearings with the same precision and durability as HDSI, positioning the company as a global niche leader.

Key applications include industrial robots (54.0% of parent sales in FY03/21), semiconductor production equipment (11.4%), metalworking machinery (4.8%), motor gear boxes (5.4%), automotive parts (4.0%), and flat panel display (FPD) production equipment. Sales by region (by destination) are 59.7% to Asia including Japan, 26.4% to Europe, and 13.9% to North America. However, the company’s customers (industrial machinery manufacturers, etc.) sell products globally, and orders and sales tend to fluctuate in line with global capital investment trends.

The company supplies high value-added products as a global niche leader, and Shared Research estimates marginal profit ratio to be around 55% at the parent level. Since the capital investment cycle is more volatile than the overall economic cycle and the company generates a high marginal profit ratio, its earnings fluctuate significantly depending on capital investment trends. Its most recent peak performance was in FY03/19 with sales of JPY67.8bn, operating profit of JPY16.9bn, and net income of JPY11.6bn, all of which were record highs.

HDSI aims to boost demand for its products by proposing new applications to its main customers, while also developing applications for industries with demand cycles that differ from the general capital investment cycle. The focus markets for the near term include collaborative robots, healthcare, space, and animatronics.

Earnings trends

FY03/21 earnings results: HDSI reported sales of JPY37.0bn (-1.2% YoY), operating profit of JPY866mn (versus operating loss of JPY195mn in FY03/20), recurring profit of JPY1.4bn (roughly 5.8x YoY), and net income attributable to owners of the parent of JPY662mn (versus net loss of JPY1.1bn in FY03/20). The YoY comparisons and FY03/20 results provided here are retroactively revised figures announced by the company on May 14. Versus the company forecast for FY03/21 (operating profit of JPY1.0bn and net income of JPY500mn), operating profit came in somewhat short of plan, while net income was slightly above plan. With the impact of the COVID-19 pandemic, demand for industrial robots and other equipment stagnated due to a cautious stance on capital investment on a global scale, causing customers and distributors to adjust inventory. This had a substantial impact on HDSI’s results. However, demand recovered from early fall, primarily from the industrial robot and semiconductor production equipment industries, and the business environment turned around. HDSI returned to the black for the first time in two years as inventory adjustments were essentially completed, sales gradually recovered, and the company prioritized cost cuts. There was no change to the 2H dividend projection (JPY10.0 per share), for a total annual dividend of JPY20.0 per share.

FY03/22 forecast: The company forecasts sales of JPY56.5bn (+52.6% YoY), operating profit of JPY8.2bn (about 9.5x the FY03/21 figure), recurring profit of JPY8.2bn (about 6.0x the FY03/21 figure), net income attributable to owners of the parent of JPY5.5bn (about 8.3x the FY03/21 figure), and EPS of JPY57.1. The company had revised its forecast upward when announcing Q1 results, but then revised down its forecast when reporting Q2 results, citing lower sales for automotive applications as the main reason. There was no change to the forecast for a total annual dividend of JPY20.0 per share (payout ratio of 35.0%: Shared Research estimate).

On May 21, 2021, the company announced a new medium-term plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn, operating profit of JPY15.0bn, OPM of at least 20%, and ROE of least 10%. Given that the company did not achieve the targets in its previous medium-term plan, partly due to US-China trade friction, it prioritized achievable forecasts. The company sees promising markets for its products as collaborative robots (co-bots), semiconductor production equipment, automotive components, surgical assistance robots, electronic vertical takeoff and landing (eVTOL) vehicles, and the space industry, in addition to FA robots, a long-standing market for the company.

Strengths and weaknesses

HDSI’s strengths include its core HarmonicDrive® product technology, the secular growth of markets for its products, and its solid financial position. On the other hand, the company’s weaknesses include volatile short-term sales trends, small batch production limiting growth, and limited ability to develop and market new products (see Strengths and weaknesses section below).

Key financial data

Income statement		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Sales		18,131	21,084	25,951	28,278	30,069	54,340	67,809	37,488	37,034	56,500
	YoY	-10.1%	16.3%	23.1%	9.0%	6.3%	80.7%	24.8%	-44.7%	-1.2%	52.6%
Gross profit		7,368	9,118	12,122	13,286	13,867	25,703	30,446	12,003	12,583	-
	YoY	-11.2%	23.7%	32.9%	9.6%	4.4%	85.4%	18.5%	-60.6%	4.8%	-
	Gross profit margin	40.6%	43.2%	46.7%	47.0%	46.1%	47.3%	44.9%	32.0%	34.0%	-
Operating profit		3,436	4,668	7,067	7,618	7,814	12,316	16,624	-195	866	8,200
	YoY	-20.7%	35.9%	51.4%	7.8%	2.6%	57.6%	35.0%	-	-	847.0%
	Operating profit margin	19.0%	22.1%	27.2%	26.9%	26.0%	22.7%	24.5%	-0.5%	2.3%	14.5%
Recurring profit		3,576	4,823	7,525	7,830	7,959	11,946	17,185	236	1,367	8,200
	YoY	-18.7%	34.9%	56.0%	4.0%	1.6%	50.1%	43.9%	-98.6%	478.2%	499.9%
	Recurring profit margin	19.7%	22.9%	29.0%	27.7%	26.5%	22.0%	25.3%	0.6%	3.7%	14.5%
Net income		1,961	2,994	4,834	5,002	19,732	7,777	11,322	-1,095	662	5,500
	YoY	-8.4%	52.7%	61.5%	3.5%	294.5%	-60.6%	45.6%	-	-	730.2%
	Net margin	10.8%	14.2%	18.6%	17.7%	65.6%	14.3%	16.7%	-2.9%	1.8%	9.7%
Per-share data (split-adjusted)
Shares issued (year-end; '000)		94,749	94,749	94,749	94,749	94,749	96,315	96,315	96,315	96,315	-
EPS (JPY)		21.4	32.7	52.8	54.6	215.4	86.9	120.5	-8.7	6.9	57.1
Dividend per share (JPY)		7.3	9.7	14.3	18.0	20.0	26.0	38.0	20.0	20.0	20.0
Book value per share (JPY)		272.5	320.1	395.7	405.3	600.5	1,035.3	1,082.3	1,011.9	1,068.8	-
Balance sheet (JPYmn)
	Cash and deposits	11,958	9,057	12,117	12,876	12,040	29,424	18,806	19,554	21,142
Total current assets		18,897	17,930	23,216	23,923	27,737	53,394	44,886	35,988	38,118
	Tangible fixed assets	5,691	5,834	7,146	9,807	14,645	21,306	40,853	45,500	41,992
	Intangible assets	152	179	177	182	42,623	43,582	39,539	35,792	41,003
	Investments and other assets	12,214	14,684	18,902	14,838	11,784	15,706	12,718	10,147	18,915
Total assets		36,954	38,626	49,441	48,750	96,788	139,382	142,872	131,848	140,028
	Accounts payable	1,498	1,742	2,160	2,308	2,673	3,162	3,513	1,473	2,413
	Short-term debt	1,761	62	285	252	15,217	57	26	972	1,108
Total current liabilities		5,642	5,079	7,176	5,945	23,935	13,630	15,945	5,128	7,954
	Long-term debt	3,159	156	460	641	449	1,529	1,726	5,991	5,221
Total fixed liabilities		5,325	3,026	4,584	3,914	15,453	17,034	13,650	20,002	22,014
Total liabilities		10,967	8,105	11,760	9,859	39,388	30,664	29,595	25,130	29,968
Total net assets		25,987	30,521	37,681	38,891	57,400	108,719	113,277	106,718	110,060
Cash flow statement (JPYmn)
Cash flows from operating activities		4,700	3,643	5,495	6,499	7,226	9,234	15,122	10,950	9,555
Cash flows from investing activities		3,272	-1,103	-2,104	-4,394	-32,523	-8,171	-22,400	-12,537	-4,181
Cash flows from financing activities		-2,546	-5,591	-738	-1,385	24,648	17,494	-3,271	2,362	-3,612
Financial ratios
Total interest-bearing debt		4,920	218	745	892	15,666	1,586	1,752	6,963	6,329
ROA (RP-based)		9.9%	12.8%	17.1%	15.9%	10.9%	10.1%	12.2%	0.2%	1.0%
ROE		8.2%	11.0%	14.7%	13.6%	42.8%	9.7%	10.6%	-1.0%	0.6%
Equity ratio		67.5%	75.9%	73.3%	76.1%	56.8%	75.4%	76.3%	77.2%	73.5%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: EPS and DPS figures for FY03/15 have been adjusted for the 3-for-1 stock split that took place on October 1, 2014.
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.

Recent updates

Announcement of earnings forecast revision, and 2Q FY03/22 order, sales

2021-11-15

On November 12 2021, Harmonic Drive Systems Inc. (HDSI) announced revisions to its FY03/22 earnings forecast.

On the same day, the company announced its (non-consolidated) orders and sales results for Q2 FY03/22.

Announcement of investment to increase production capacity at Ariake Plant

2021-10-13

Harmonic Drive Systems, Inc. announces investment to increase production capacity at Ariake Plant.

Increasing domestic production capacity of strain wave gearing devices from 150,000 units/month to 220,000 units/month.

The company has announced that it will increase the production capacity of its mainstay product, the Harmonic Drive®, from the current 150,000 units per month to 220,000 units per month at its Ariake Plant (Nagano Prefecture) by investing approximately JPY6.5bn between March and August 2022 (referring to total production capacity of the Ariake Plant and Hotaka Plant from August 2022). The breakdown of the capacity increase (70,000 units/month) is 40,000 units/month for the industrial machinery sector and 30,000 units/month for the automotive industry.

Increased production capacity not included in the current medium-term management plan

In the previous mid-term plan, which ended in March 2021, the company already increased its production capacity globally even though demand was depressed due to trade tensions between the US and China. Therefore, the current mid-term plan, starting from April 2021, does not call for any significant capital investment to increase production capacity. Nonetheless, Shared Research understands that the company's decision to increase production capacity reflects higher-than-expected demand not only for equipment for the industrial robots and semiconductor manufacturing industries, but also for equipment related to the industrial machinery and automotive sectors. The company has already lifted its FY03/22 forecast in its Q1 results, and is on track to achieve the earnings target set in its medium-term management plan one year ahead of schedule. Furthermore, Shared Research expects a noteworthy upgrade when the company revises its current medium-term management plan, including its recently announced capital expenditure plan.

Trends and outlook

Quarterly orders (parent)

Parent orders by application

By application (parent)			FY03/20				FY03/21				FY03/22		FY03/22
(JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	% of Est.	FY Est.
Orders			2,839	3,092	4,788	5,447	4,984	5,131	7,586	12,943	18,357	21,515
	YoY		-70.3%	-50.0%	16.7%	95.0%	75.6%	65.9%	58.4%	137.6%	268.3%	319.3%
	Semiconductor production equipment		192	325	416	692	649	575	834	2,006	2,640	3,689
		YoY	-82.9%	-47.9%	-17.1%	86.0%	238.0%	76.9%	100.5%	189.9%	306.8%	541.6%
	Flat panel display equipment		77	85	151	268	172	162	224	298	505	614
		YoY	-77.0%	-47.2%	21.8%	282.9%	123.4%	90.6%	48.3%	11.2%	193.6%	279.0%
	Industrial robot applications		869	1,170	2,145	2,390	2,764	2,765	4,279	7,377	10,840	11,808
		YoY	-80.9%	-55.6%	56.2%	299.7%	218.1%	136.3%	99.5%	208.7%	292.2%	327.1%
	Gear boxes (for electric motor manufacturers)		187	195	418	290	318	213	399	614	959	665
		YoY	-66.2%	-56.0%	2.2%	27.8%	70.1%	9.2%	-4.5%	111.7%	201.6%	212.2%
	Machine tools		191	206	245	249	220	248	413	415	619	730
		YoY	-70.2%	-46.5%	-5.4%	7.3%	15.2%	20.4%	68.6%	66.7%	181.4%	194.4%
	Oil-drilling equipment		76	59	46	127	41	-	-	-	-	-
		YoY	-54.2%	-70.9%	0.0%	182.2%	-46.1%	-	-	-	-	-
	Automotive		429	401	297	342	47	350	332	330	831	1,222
		YoY	-	-	-18.2%	-19.9%	-89.0%	-12.7%	11.8%	-3.5%	1,668.1%	249.1%
	Other		816	647	1,067	1,085	769	816	1,101	1,900	1,960	2,782
		YoY	-62.4%	-62.5%	4.5%	32.6%	-5.8%	26.1%	3.2%	75.1%	154.9%	240.9%
Sales			6,014	4,512	3,979	5,281	5,359	4,681	6,386	7,836	8,965	10,059	46.4%	41,000
	YoY		-51.1%	-65.1%	-69.8%	-51.3%	-10.9%	3.7%	60.5%	48.4%	67.3%	114.9%		69.0%
	Semiconductor production equipment		683	479	435	620	661	500	704	911	1,417	1,387
		YoY	-54.6%	-73.9%	-69.6%	-39.3%	-3.2%	4.4%	61.8%	46.9%	114.4%	177.4%
	Flat panel display equipment		111	89	199	241	217	158	185	209	216	251
		YoY	-89.1%	-88.2%	-69.6%	-38.2%	95.5%	77.5%	-7.0%	-13.3%	-0.5%	58.9%
	Industrial robot applications		2,804	2,122	1,484	2,475	2,587	2,453	3,444	4,626	4,498	5,085
		YoY	-54.8%	-68.5%	-79.1%	-60.1%	-7.7%	15.6%	132.1%	86.9%	73.9%	107.3%
	Gear boxes (for electric motor manufacturers)		331	156	302	333	338	279	301	401	495	517
		YoY	-44.1%	-74.7%	-53.0%	-40.7%	2.1%	78.8%	-0.3%	20.4%	46.4%	85.3%
	Machine tools		449	290	262	260	259	227	347	327	374	349
		YoY	-37.6%	-51.6%	-66.1%	-51.8%	-42.3%	-21.7%	32.4%	25.8%	44.4%	53.7%
	Oil-drilling equipment		93	32	72	41	134	-	-	-	-	-
		YoY	-59.2%	-85.5%	-59.8%	-86.1%	44.1%	-	-	-	-	-
	Automotive		413	424	312	300	88	232	384	275	537	1,074
		YoY	-	-	-32.5%	0.0%	-78.7%	-45.3%	23.1%	-8.3%	510.2%	362.9%
	Other		1,126	918	911	1,006	1,072	829	1,018	1,083	1,426	1,395
		YoY	-45.0%	-57.3%	-52.2%	-34.2%	-4.8%	-9.7%	11.7%	7.7%	33.0%	68.3%

Source: Shared Research based on company data

Parent orders by product

		FY03/20				FY03/21				FY03/22		FY03/21
		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Act.
Orders
	Speed Reducers	2,072	2,470	3,954	4,384	4,086	4,198	6,510	11,386	16,476	18,989	26,172
	(Domestic)	1,466	1,732	2,702	3,328	3,351	3,224	5,191	8,026	13,519	14,613	19,783
	(Exports)	606	738	1,252	1,056	735	974	1,319	3,360	2,957	4,376	6,389
	Mechatronics	767	621	833	1,062	897	933	1,084	1,557	1,880	2,525	4,473
	(Domestic)	627	430	553	694	570	588	612	823	1,100	1,110	2,594
	(Exports)	140	191	280	368	327	345	472	734	780	1,415	1,879
	Total	2,839	3,092	4,788	5,447	4,984	5,131	7,586	12,943	18,357	21,515	30,646
	(Domestic)	2,092	2,162	3,255	4,023	3,921	3,811	5,795	8,849	14,619	15,723	22,377
	(Exports)	747	930	1,533	1,424	1,063	1,320	1,791	4,094	3,738	5,792	8,269
Sales
	Speed Reducers	5,013	3,556	3,110	4,371	4,397	3,922	5,441	6,701	7,786	8,974	20,463
	(Domestic)	3,654	2,851	2,291	3,016	3,343	3,206	4,238	5,166	5,550	7,196	15,953
	(Exports)	1,359	705	819	1,355	1,054	716	1,203	1,535	2,236	1,778	4,510
	Mechatronics	1,001	956	868	909	962	759	945	1,135	1,179	1,084	3,801
	(Domestic)	597	703	526	585	611	492	555	696	654	656	2,352
	(Exports)	404	253	342	324	351	267	390	439	525	428	1,449
	Total	6,014	4,512	3,979	5,281	5,359	4,681	6,386	7,836	8,965	10,059	24,264
	(Domestic)	4,251	3,554	2,817	3,601	3,953	3,698	4,792	5,861	6,204	7,853	18,304
	(Exports)	1,763	958	1,162	1,680	1,406	983	1,594	1,975	2,761	2,206	5,960
YoY
Orders
	Speed Reducers	-73.8%	-53.0%	25.4%	130.3%	97.2%	70.0%	64.6%	159.7%	303.2%	352.3%	103.2%
	(Domestic)	-77.7%	-56.2%	12.4%	176.9%	128.6%	86.1%	92.1%	141.2%	303.4%	353.3%	114.4%
	(Exports)	-54.1%	-43.2%	67.2%	50.4%	21.3%	32.0%	5.4%	218.2%	302.3%	349.3%	74.8%
	Mechatronics	-53.4%	-33.4%	-12.2%	19.5%	16.9%	50.2%	30.1%	46.6%	109.6%	170.6%	36.2%
	(Domestic)	-42.2%	-17.1%	-1.8%	49.2%	-9.1%	36.7%	10.7%	18.6%	93.0%	88.8%	12.5%
	(Exports)	-75.0%	-53.9%	-27.5%	-13.2%	133.6%	80.6%	68.6%	99.5%	138.5%	310.1%	91.7%
	Total	-70.3%	-50.0%	16.7%	95.0%	75.6%	65.9%	58.4%	137.6%	268.3%	319.3%	89.6%
	(Domestic)	-72.7%	-51.6%	9.7%	141.3%	87.4%	76.3%	78.0%	120.0%	272.8%	312.6%	94.0%
	(Exports)	-60.3%	-45.8%	34.9%	26.5%	42.3%	41.9%	16.8%	187.5%	251.6%	338.8%	78.4%
Sales
	Speed Reducers	-53.3%	-68.8%	-72.8%	-54.2%	-12.3%	10.3%	75.0%	53.3%	77.1%	128.8%	27.5%
	(Domestic)	-54.3%	-69.2%	-75.8%	-61.0%	-8.5%	12.5%	85.0%	71.3%	66.0%	124.5%	35.0%
	(Exports)	-50.5%	-66.9%	-58.8%	-24.5%	-22.4%	1.6%	46.9%	13.3%	112.1%	148.3%	6.4%
	Mechatronics	-36.4%	-37.5%	-49.8%	-30.7%	-3.9%	-20.6%	8.9%	24.9%	22.6%	42.8%	1.8%
	(Domestic)	-35.1%	-30.1%	-45.2%	-15.5%	2.3%	-30.0%	5.5%	19.0%	7.0%	33.3%	-2.4%
	(Exports)	-38.3%	-51.6%	-55.5%	-47.7%	-13.1%	5.5%	14.0%	35.5%	49.6%	60.3%	9.4%
	Total	-51.1%	-65.1%	-69.8%	-51.3%	-10.9%	3.7%	60.5%	48.4%	67.3%	114.9%	22.6%
	(Domestic)	-52.3%	-65.4%	-73.0%	-57.3%	-7.0%	4.1%	70.1%	62.8%	56.9%	112.4%	28.7%
	(Exports)	-48.1%	-63.9%	-57.8%	-30.5%	-20.2%	2.6%	37.2%	17.6%	96.4%	124.4%	7.1%
QoQ
Orders
	Speed Reducers	8.8%	19.2%	60.1%	10.9%	-6.8%	2.7%	55.1%	74.9%	44.7%	15.3%
	(Domestic)	22.0%	18.1%	56.0%	23.2%	0.7%	-3.8%	61.0%	54.6%	68.4%	8.1%
	(Exports)	-13.7%	21.8%	69.6%	-15.7%	-30.4%	32.5%	35.4%	154.7%	-12.0%	48.0%
	Mechatronics	-13.7%	-19.0%	34.1%	27.5%	-15.5%	4.0%	16.2%	43.6%	20.7%	34.3%
	(Domestic)	34.8%	-31.4%	28.6%	25.5%	-17.9%	3.2%	4.1%	34.5%	33.7%	0.9%
	(Exports)	-67.0%	36.4%	46.6%	31.4%	-11.1%	5.5%	36.8%	55.5%	6.3%	81.4%
	Total	1.6%	8.9%	54.9%	13.8%	-8.5%	2.9%	47.8%	70.6%	41.8%	17.2%
	(Domestic)	25.5%	3.3%	50.6%	23.6%	-2.5%	-2.8%	52.1%	52.7%	65.2%	7.6%
	(Exports)	-33.7%	24.5%	64.8%	-7.1%	-25.4%	24.2%	35.7%	128.6%	-8.7%	54.9%
Sales
	Speed Reducers	-47.4%	-29.1%	-12.5%	40.5%	0.6%	-10.8%	38.7%	23.2%	16.2%	15.3%
	(Domestic)	-52.8%	-22.0%	-19.6%	31.6%	10.8%	-4.1%	32.2%	21.9%	7.4%	29.7%
	(Exports)	-24.3%	-48.1%	16.2%	65.4%	-22.2%	-32.1%	68.0%	27.6%	45.7%	-20.5%
	Mechatronics	-23.7%	-4.5%	-9.2%	4.7%	5.8%	-21.1%	24.5%	20.1%	3.9%	-8.1%
	(Domestic)	-13.7%	17.8%	-25.2%	11.2%	4.4%	-19.5%	12.8%	25.4%	-6.0%	0.3%
	(Exports)	-34.8%	-37.4%	35.2%	-5.3%	8.3%	-23.9%	46.1%	12.6%	19.6%	-18.5%
	Total	-44.6%	-25.0%	-11.8%	32.7%	1.5%	-12.7%	36.4%	22.7%	14.4%	12.2%
	(Domestic)	-49.6%	-16.4%	-20.7%	27.8%	9.8%	-6.5%	29.6%	22.3%	5.9%	26.6%
	(Exports)	-27.0%	-45.7%	21.3%	44.6%	-16.3%	-30.1%	62.2%	23.9%	39.8%	-20.1%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Quarterly trends and results

Cumulative		FY03/20				FY03/21				FY03/22		FY03/22
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	% of Est.	FY Est.
Sales		11,652	21,577	29,581	37,488	9,318	17,703	26,646	37,034	11,901	26,341	46.6%	56,500
	YoY	-29.1%	-37.4%	-43.4%	-44.7%	-20.0%	-18.0%	-9.9%	-1.2%	27.7%	48.8%		52.6%
Gross profit		4,465	7,412	9,513	12,003	3,051	5,505	8,574	12,583	4,951	10,150
	YoY	-43.8%	-52.7%	-60.6%	-60.6%	-31.7%	-25.7%	-9.9%	4.8%	62.3%	84.4%
	Gross profit margin	38.3%	34.4%	32.2%	32.0%	32.7%	31.1%	32.2%	34.0%	41.6%	38.5%
SG&A expenses		2,961	6,029	8,759	12,199	2,836	5,586	8,458	11,717	3,167	6,623
	YoY	-9.7%	-10.6%	-12.1%	-9.9%	-4.2%	-7.3%	-3.4%	-3.9%	11.7%	18.6%
	SG&A ratio	25.4%	27.9%	29.6%	32.5%	30.4%	31.6%	31.7%	31.6%	26.6%	25.1%
Operating profit		1,437	1,251	556	-195	150	-212	-83	866	1,784	3,527	43.0%	8,200
	YoY	-68.7%	-85.7%	-96.0%	-	-89.6%	-	-	-	1,089.4%	-		847.0%
	Operating profit margin	12.3%	5.8%	1.9%	-0.5%	1.6%	-1.2%	-0.3%	2.3%	15.0%	13.4%		14.5%
Recurring profit		1,431	1,481	855	236	247	85	220	1,367	1,708	3,566	43.5%	8,200
	YoY	-69.9%	-83.9%	-94.0%	-98.6%	-82.7%	-94.3%	-74.3%	478.2%	591.3%	4,095.0%		499.9%
	Recurring profit margin	12.3%	6.9%	2.9%	0.6%	2.7%	0.5%	0.8%	3.7%	14.3%	13.5%		14.5%
Net income		315	148	-734	-1,095	116	-16	-16	662	1,122	2,219	40.3%	5,500
	YoY	-89.5%	-97.4%	-	-	-63.2%	-	-	-	867.1%	-		730.2%
	Net margin	2.7%	0.7%	-2.5%	-2.9%	1.2%	-0.1%	-0.1%	1.8%	9.4%	8.4%		9.7%
Quarterly		FY03/20				FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales		11,652	9,925	8,004	7,906	9,318	8,385	8,944	10,388	11,901	14,440
	YoY	-29.1%	-45.0%	-55.0%	-49.1%	-20.0%	-15.5%	11.7%	31.4%	27.7%	72.2%
Gross profit		4,465	2,947	2,100	2,491	3,051	2,454	3,069	4,009	4,951	5,199
	YoY	-43.8%	-61.8%	-75.3%	-60.5%	-31.7%	-16.7%	46.1%	61.0%	62.3%	111.8%
	Gross profit margin	38.3%	29.7%	26.2%	31.5%	32.7%	29.3%	34.3%	38.6%	41.6%	36.0%
SG&A expenses		2,961	3,067	2,730	3,440	2,836	2,750	2,872	3,259	3,167	3,456
	YoY	-9.7%	-11.4%	-15.2%	-3.9%	-4.2%	-10.3%	5.2%	-5.3%	11.7%	25.7%
	SG&A ratio	25.4%	30.9%	34.1%	43.5%	30.4%	32.8%	32.1%	31.4%	26.6%	23.9%
Operating profit		1,437	-186	-695	-751	150	-362	129	949	1,784	1,743
	YoY	-68.7%	-	-	-	-89.6%	-	-	-	1,089.4%	-
	Operating profit margin	12.3%	-1.9%	-8.7%	-9.5%	1.6%	-4.3%	1.4%	9.1%	15.0%	12.1%
Recurring profit		1,431	50	-626	-619	247	-162	135	1,147	1,708	1,858
	YoY	-69.9%	-98.9%	-	-	-82.7%	-	-	-	591.3%	-
	Recurring profit margin	12.3%	0.5%	-7.8%	-7.8%	2.7%	-1.9%	1.5%	11.0%	14.3%	12.9%
Net income		315	-167	-882	-361	116	-132	-	678	1,122	1,097
	YoY	-89.5%	-	-	-	-63.2%	-	-	-	867.1%	-
	Net margin	2.7%	-1.7%	-11.0%	-4.6%	1.2%	-1.6%	0.0%	6.5%	9.4%	7.6%

Source: Shared Research based on company data
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.

By regional segment

By segment			FY03/20				FY03/21				FY03/22
Quarterly (JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales			11,652	9,925	8,004	7,906	9,318	8,385	8,944	10,388	11,901	14,440
	YoY		-29.1%	-45.0%	-55.0%	-49.1%	-20.0%	-15.5%	11.7%	31.4%	27.7%	72.2%
	Japan		5,888	4,779	3,719	4,226	5,035	4,570	5,525	6,983	7,657	9,552
		YoY	-46.1%	-61.7%	-69.0%	-57.4%	-14.5%	-4.4%	48.6%	65.2%	52.1%	109.0%
	North America		1,825	1,774	1,291	1,351	1,307	1,371	1,308	1,159	1,372	1,613
		YoY	18.2%	6.7%	-27.6%	-26.0%	-28.4%	-22.7%	1.3%	-14.2%	5.0%	17.6%
	Europe		3,939	3,372	2,994	2,329	2,976	2,443	2,111	2,245	2,872	3,276
		YoY	-1.0%	-13.3%	-25.2%	-38.6%	-24.4%	-27.6%	-29.5%	-3.6%	-3.5%	34.1%
Recurring profit			1,431	50	-626	-619	247	-162	135	1,147	1,708	1,858
	YoY		-69.9%	-98.9%	-	-	-82.7%	-	-	-	591.3%	-
	Recurring profit margin		12.3%	0.5%	-7.8%	-7.8%	2.7%	-1.9%	1.5%	11.0%	14.3%	12.9%
	Japan		1,418	414	-35	691	912	515	1,147	2,236	2,529	2,735
		YoY	-68.4%	-91.0%	-	-78.4%	-35.7%	24.4%	-	223.4%	177.4%	431.7%
		Recurring profit margin	24.1%	8.7%	-0.9%	16.4%	18.1%	11.3%	20.8%	32.0%	33.0%	28.6%
		% of total	99.1%	827.4%	5.5%	-111.8%	369.2%	-317.6%	849.7%	195.0%	148.1%	147.2%
	North America		364	467	85	39	98	106	48	58	58	156
		YoY	41.5%	36.0%	-80.9%	-88.4%	-73.2%	-77.3%	-42.8%	50.5%	-40.6%	47.3%
		Recurring profit margin	20.0%	26.3%	6.6%	2.9%	7.5%	7.7%	3.7%	5.0%	4.2%	9.7%
		% of total	25.5%	934.4%	-13.5%	-6.2%	39.6%	-65.4%	35.8%	5.1%	3.4%	8.4%
	Europe		148	-95	-187	-667	-47	-178	-372	-324	-58	-52
		YoY	-77.0%	-	-	-	-	-	-	-	-	-
		Recurring profit margin	3.8%	-2.8%	-6.3%	-28.6%	-1.6%	-7.3%	-17.6%	-14.4%	-2.0%	-1.6%
		% of total	10.4%	-189.6%	29.9%	107.8%	-18.9%	110.1%	-275.4%	-28.2%	-3.4%	-2.8%
	Adjustments		-432	-672	-423	-880	-715	-605	-489	-1,023	-822	-981

Source: Shared Research based on company data
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.

Orders

Orders					FY03/20				FY03/21				FY03/22
Quarterly (JPYmn)					Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Orders					7,676	5,579	7,908	8,868	9,780	7,619	9,785	14,491	22,921	25,067
	YoY				-52.3%	-56.4%	-16.4%	36.1%	27.4%	36.6%	23.7%	63.4%	134.4%	229.0%
	Japan	Total			3,181	2,630	4,268	4,913	4,860	4,573	6,798	10,436	17,046	18,601
			YoY		-66.6%	-59.2%	9.4%	106.7%	52.8%	73.9%	59.3%	112.4%	250.7%	306.7%
			Speed Reducers		2,428	2,107	3,550	4,045	4,156	3,857	6,023	9,436	15,639	17,169
				YoY	-70.7%	-63.6%	10.3%	128.1%	71.1%	83.0%	69.7%	133.3%	276.3%	345.1%
			Mechatronics		753	523	718	868	704	716	775	1,000	1,407	1,433
				YoY	-38.6%	-20.3%	5.2%	43.7%	-6.4%	37.0%	7.8%	15.3%	99.7%	100.0%
	North America	Total			1,478	747	1,242	1,509	1,854	1,049	1,093	1,309	2,572	2,551
			YoY		-20.8%	-66.8%	-20.5%	36.1%	25.5%	40.5%	-12.0%	-13.3%	38.7%	143.0%
			Speed Reducers		957	391	664	1,012	907	529	646	547	1,256	1,379
				YoY	-14.9%	-74.4%	-29.0%	45.0%	-5.3%	35.1%	-2.7%	-46.0%	38.5%	160.8%
			Mechatronics		521	356	578	497	948	521	447	762	1,316	1,172
				YoY	-29.9%	-50.6%	-8.0%	21.1%	81.9%	46.4%	-22.6%	53.3%	38.9%	125.0%
	Europe	Total			3,016	2,202	2,398	2,446	3,065	1,997	1,894	2,746	3,303	3,915
			YoY		-35.8%	-46.1%	-40.0%	-19.2%	1.6%	-9.3%	-21.0%	12.3%	7.8%	96.1%
			Speed Reducers		2,049	1,550	1,964	1,796	2,347	1,094	1,348	1,740	2,588	3,013
				YoY	-35.6%	-47.7%	-33.0%	-25.5%	14.6%	-29.4%	-31.3%	-3.1%	10.2%	175.4%
			Mechatronics		967	652	434	650	718	903	546	1,006	716	903
				YoY	-36.1%	-42.0%	-59.2%	5.4%	-25.7%	38.3%	25.6%	54.7%	-0.3%	0.0%
Order backlog					12,707	8,052	7,689	8,957	9,174	8,181	9,406	13,415	24,741	35,117
	YoY				-70.0%	-77.9%	-71.0%	-45.7%	-27.8%	1.6%	22.3%	49.8%	169.7%	329.3%
	Japan	Total			4,289	1,965	2,384	3,128	2,898	2,786	4,047	7,378	16,713	25,481
			YoY		-86.5%	-92.1%	-84.7%	-58.3%	-32.4%	41.7%	69.8%	135.9%	476.7%	814.8%
			Speed Reducers		3,795	1,776	2,143	2,796	2,607	2,498	3,686	6,906	15,658	23,816
				YoY	-87.2%	-92.5%	-85.5%	-59.9%	-31.3%	40.7%	72.0%	147.0%	500.7%	853.5%
			Mechatronics		494	190	241	332	292	288	361	473	1,055	1,665
				YoY	-76.1%	-87.0%	-71.4%	-37.7%	-41.0%	51.6%	49.8%	42.6%	261.8%	478.8%
	North America	Total			3,149	2,003	1,938	2,121	2,650	2,303	2,050	2,149	3,540	4,475
			YoY		-17.0%	-55.4%	-55.5%	-39.6%	-15.9%	14.9%	5.8%	1.3%	33.6%	94.4%
			Speed Reducers		2,184	1,402	1,289	1,476	1,544	1,252	1,106	1,012	1,634	2,141
				YoY	-12.7%	-54.7%	-55.8%	-37.5%	-29.3%	-10.6%	-14.1%	-31.5%	5.8%	71.0%
			Mechatronics		966	602	649	645	1,106	1,050	944	1,138	1,907	2,334
				YoY	-25.4%	-57.0%	-54.8%	-43.9%	14.6%	74.5%	45.4%	76.4%	72.3%	122.3%
	Europe	Total			5,269	4,084	3,368	3,708	3,626	3,093	3,309	3,887	4,488	5,161
			YoY		-22.5%	-41.7%	-48.5%	-32.4%	-31.2%	-24.3%	-1.8%	4.8%	23.8%	66.9%
			Speed Reducers		3,530	2,734	2,514	2,975	2,870	2,321	2,399	2,574	3,136	3,749
				YoY	-21.2%	-40.5%	-40.7%	-20.8%	-18.7%	-15.1%	-4.6%	-13.5%	9.3%	61.5%
			Mechatronics		1,739	1,350	854	733	756	771	909	1,313	1,351	1,412
				YoY	-25.0%	-44.0%	-63.0%	-57.6%	-56.6%	-42.9%	6.5%	79.0%	78.8%	83.1%

Source: Shared Research based on company data

Production

Production					FY03/20				FY03/21				FY03/22
Quarterly (JPYmn)					Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Production					10,701	10,478	6,904	7,614	8,771	8,471	8,687	10,372	11,753	15,029
	YoY				-35.8%	-44.1%	-61.0%	-51.8%	-18.0%	-19.2%	25.8%	36.2%	34.0%	77.4%
	Japan	Total			6,483	6,223	4,077	5,216	5,806	5,353	6,107	7,797	8,611	11,068
			YoY		-48.8%	-56.6%	-68.7%	-55.2%	-10.4%	-14.0%	49.8%	49.5%	48.3%	106.8%
			Speed Reducers		4,980	4,920	3,087	4,040	4,872	4,372	5,140	6,594	7,296	9,627
				YoY	-55.2%	-60.7%	-72.9%	-59.2%	-2.2%	-11.1%	66.5%	63.2%	49.7%	120.2%
			Mechatronics		1,503	1,303	990	1,176	934	981	967	1,203	1,315	1,442
				YoY	-2.2%	-28.6%	-39.1%	-33.0%	-37.8%	-24.7%	-2.3%	2.3%	40.7%	47.0%
	North America	Total			1,119	1,440	959	873	928	1,069	901	703	869	1,120
			YoY		-1.2%	29.7%	-15.6%	-24.4%	-17.0%	-25.8%	-6.1%	-19.4%	-6.4%	4.8%
			Speed Reducers		772	847	675	496	570	629	531	371	460	618
				YoY	10.7%	20.1%	-17.1%	-39.6%	-26.1%	-25.7%	-21.3%	-25.2%	-19.3%	-1.7%
			Mechatronics		347	593	285	377	358	439	370	332	409	502
				YoY	-20.4%	46.3%	-11.7%	12.9%	3.1%	-26.0%	29.9%	-11.7%	14.1%	14.2%
	Europe	Total			3,099	2,815	1,867	1,525	2,036	2,049	1,679	1,871	2,274	2,840
			YoY		7.4%	-14.8%	-47.3%	-49.3%	-34.3%	-27.2%	-10.1%	22.7%	11.7%	38.6%
			Speed Reducers		2,286	2,151	1,260	983	1,567	1,532	1,247	1,371	1,784	2,161
				YoY	0.9%	-15.8%	-53.8%	-55.2%	-31.4%	-28.8%	-1.0%	39.4%	13.8%	41.1%
			Mechatronics		813	664	607	542	469	517	432	500	489	679
				YoY	31.5%	-11.7%	-25.1%	-33.6%	-42.3%	-22.1%	-28.8%	-7.7%	4.3%	31.4%

Source: Shared Research based on company data

Sales

Sales					FY03/20				FY03/21				FY03/22
Quarterly (JPYmn)					Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales					11,652	9,925	8,004	7,906	9,318	8,385	8,944	10,388	11,901	14,440
	YoY				-29.1%	-45.0%	-55.0%	-49.1%	-20.0%	-15.5%	11.7%	31.4%	27.7%	72.2%
	Japan	Total			5,814	4,742	3,711	4,218	5,035	4,570	5,525	6,983	7,657	9,552
			YoY		-46.6%	-61.4%	-69.0%	-57.1%	-13.4%	-3.6%	48.9%	65.6%	52.1%	109.0%
			Speed Reducers		5,027	3,925	3,047	3,442	4,301	3,952	4,828	6,104	6,837	8,736
				YoY	-48.8%	-64.8%	-71.9%	-61.5%	-14.4%	0.7%	58.4%	77.3%	59.0%	121.1%
			Mechatronics		787	818	664	776	735	619	697	879	820	816
				YoY	-27.3%	-29.5%	-40.6%	-13.2%	-6.7%	-24.3%	5.0%	13.3%	11.6%	31.9%
	North America	Total			1,833	1,777	1,295	1,353	1,307	1,371	1,308	1,159	1,372	1,613
			YoY		17.7%	6.4%	-27.6%	-26.5%	-28.7%	-22.9%	1.0%	-14.3%	5.0%	17.6%
			Speed Reducers		1,131	1,088	826	790	826	803	769	617	717	872
				YoY	28.8%	6.0%	-29.6%	-32.9%	-27.0%	-26.2%	-6.8%	-21.9%	-13.1%	8.5%
			Mechatronics		703	690	469	563	482	568	538	542	655	741
				YoY	3.3%	7.2%	-23.9%	-15.1%	-31.5%	-17.7%	14.8%	-3.6%	36.0%	30.5%
	Europe	Total			4,005	3,405	2,998	2,336	2,976	2,443	2,111	2,245	2,872	3,276
			YoY		0.4%	-16.2%	-25.9%	-39.4%	-25.7%	-28.3%	-29.6%	-3.9%	-3.5%	34.1%
			Speed Reducers		2,815	2,350	2,097	1,494	2,313	1,705	1,486	1,616	2,150	2,429
				YoY	-9.6%	-22.2%	-30.7%	-45.1%	-17.8%	-27.4%	-29.1%	8.1%	-7.1%	42.5%
			Mechatronics		1,190	1,056	901	842	663	738	625	630	722	847
				YoY	36.1%	1.3%	-11.6%	-25.6%	-44.3%	-30.1%	-30.7%	-25.2%	9.0%	14.7%

Source: Shared Research based on company data

Sales by region (by destination)

Sales by region			FY03/20				FY03/21				FY03/22
Quarterly (JPYmn)			Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2
Sales			11,652	9,925	8,004	7,906	9,318	8,385	8,944	10,388	11,901	14,440
	YoY		-29.1%	-45.0%	-55.0%	-49.1%	-20.0%	-15.5%	11.7%	31.4%	27.7%	72.2%
	Japan		4,167	3,550	2,831	3,508	3,979	3,717	4,887	5,839	6,255	7,733
		YoY	-52.7%	-65.7%	-72.9%	-55.2%	-4.5%	4.7%	72.6%	66.4%	57.2%	108.0%
		% of total	35.8%	35.8%	35.4%	44.4%	42.7%	44.3%	54.6%	56.2%	52.6%	53.6%
	North America		1,825	1,774	1,291	1,351	1,307	1,371	1,308	1,159	1,372	1,613
		YoY	18.2%	6.7%	-27.6%	-27.7%	-28.4%	-22.7%	1.3%	-14.2%	5.0%	17.6%
		% of total	15.7%	17.9%	16.1%	17.1%	14.0%	16.4%	14.6%	11.2%	11.5%	11.2%
	Europe		3,939	3,372	2,994	2,329	2,976	2,443	2,111	2,245	2,872	3,276
		YoY	-1.0%	-13.3%	-25.2%	-42.9%	-24.4%	-27.6%	-29.5%	-3.6%	-3.5%	34.1%
		% of total	33.8%	34.0%	37.4%	29.5%	31.9%	29.1%	23.6%	21.6%	24.1%	22.7%
	Other regions		1,721	1,229	888	718	1,057	853	637	1,145	1,401	1,819
		YoY	-18.2%	-42.4%	-43.0%	-59.2%	-38.6%	-30.6%	-28.2%	59.4%	32.6%	113.2%
		% of total	14.8%	12.4%	11.1%	9.1%	11.3%	10.2%	7.1%	11.0%	11.8%	12.6%

Source: Shared Research based on company data

1H FY03/22 results (out November 12, 2021)

Results summary

1H FY03/22 (April–September 2021) results were as follows:

Sales: JPY26.3bn (+48.8% YoY, versus company forecast of JPY26.0bn)
Operating profit: JPY3.5bn (versus loss of JPY212mn in 1H FY03/21 and company forecast of JPY3.7bn)
Recurring profit: JPY3.6bn (versus profit of JPY85mn in 1H FY03/21 and company forecast of JPY3.7bn)
Net income: JPY2.2bn (versus loss of JPY16mn in 1H FY0/21 and company forecast of JPY2.5bn)

Company forecasts refer to the upwardly revised forecasts released at the same time as Q1 results. HDSI plans to pay an interim dividend of JPY10.0/share (unchanged from said forecast).

Sales of mainstay reducers increased, thanks to a recovery in industrial robot orders (mainly in China) in anticipation of further automation of the automotive and high-tech industries, and also to stronger demand for SPE and automotive electronics applications. Earnings surpassed the previous year on the back of this sales growth, but fell short of company forecasts at all levels of profit.

Q2 FY03/22 (July–September 2021) results were as follows:

Sales: JPY14.4bn (+72.2% YoY)
Operating profit: JPY1.7bn (versus loss of JPY362mn in Q2 FY03/21)
Recurring profit: JPY1.9bn (versus loss of JPY162mn in Q2 FY03/21)
Net income: JPY1.1bn (versus loss of JPY132mn in Q2 FY03/21)

Shared Research plans to update this report following interviews with company.

FY03/22 company forecast

Cons.		FY03/21			FY03/22 co. forecast			FY03/22 revised forecast (as of Aug.6th)			FY03/22 initial forecast
(JPYmn)		1H	2H	FY	1H Act.	2H Est.	FY Est.	1H Est.	2H Est.	FY Est.	1H Est.	2H Est.	FY Est.
Sales		17,703	19,331	37,034	26,341	30,159	56,500	26,000	32,000	58,000	25,000	27,000	52,000
	YoY	-18.0%	-10.4%	-1.2%	48.8%	56.0%	52.6%	46.9%	80.8%	56.6%	41.2%	52.5%	40.4%
Gross profit		5,505	7,078	12,583	10,150
	YoY	-25.7%	-4.5%	4.8%	84.4%
	Gross profit margin	31.1%	36.6%	34.0%	38.5%
SG&A expenses		5,586	6,131	11,717	6,623
	YoY	-7.3%	1.7%	-3.9%	18.6%
	SG&A ratio	31.6%	31.7%	31.6%	25.1%
Operating profit		-212	1,078	866	3,527	4,673	8,200	3,700	5,800	9,500	2,900	3,700	6,600
	YoY	-	-13.8%	-	-	333.5%	847.0%	-	-	997.1%	-	-	662.2%
	Operating profit margin	-1.2%	5.6%	2.3%	13.4%	15.5%	14.5%	14.2%	18.1%	16.4%	11.6%	13.7%	12.7%
Recurring profit		85	1,282	1,367	3,566	4,634	8,200	3,700	5,800	9,500	2,900	3,800	6,700
	YoY	-94.3%	-13.5%	478.2%	4,095.0%	261.5%	499.9%	4,252.9%	6,723.5%	595.1%	3,311.8%	4,370.6%	390.2%
	Recurring profit margin	0.5%	6.6%	3.7%	13.5%	15.4%	14.5%	14.2%	18.1%	16.4%	11.6%	14.1%	12.9%
Net income		-16	678	662	2,219	3,281	5,500	2,500	4,100	6,600	2,000	2,700	4,700
	YoY	-	358.4%	-	-	383.6%	730.2%	-	-	896.2%	-	-	609.4%
	Net margin	-0.1%	3.5%	1.8%	8.4%	10.9%	9.7%	9.6%	12.8%	11.4%	8.0%	10.0%	9.0%
Capital expenditures		835	1,124	1,959						6,500			6,500
Depreciation		3,490	3,899	7,389						8,000			8,000
R&D expense		1,174	1,270	2,444						3,000			3,000

Source: Shared Research based on company data
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.

Parent		FY03/21			FY03/22 revised forecast			FY03/22 initial forecast
(JPYmn)		1H	2H	FY	1H Est.	2H Est.	FY Est.	1H Est.	2H Est.	FY Est.
Sales (parent)		10,041	14,223	24,264	19,000	24,000	43,000	18,500	19,500	38,000
	YoY	-4.6%	53.6%	22.6%	89.2%	68.7%	77.2%	84.2%	37.1%	56.6%
Operating profit		416	2,157	2,573	3,600	5,200	8,800	3,300	3,500	6,800
	YoY	17.5%	8,196.2%	577.1%	765.4%	141.1%	242.0%	693.3%	62.3%	164.3%
	Operating profit margin	4.1%	15.2%	10.6%	18.9%	21.7%	20.5%	17.8%	17.9%	17.9%
Recurring profit		537	2,227	2,764	3,600	5,200	8,800	3,300	3,500	6,800
	YoY	-20.9%	1,217.8%	225.9%	570.4%	133.5%	218.4%	514.5%	57.2%	146.0%
	Recurring profit margin	5.3%	15.7%	11.4%	18.9%	21.7%	20.5%	17.8%	17.9%	17.9%
Net income		388	1,480	1,868	2,600	3,600	6,200	2,400	2,600	5,000
	YoY	53.4%	-	-	570.1%	143.2%	231.9%	848.6%	-	167.7%
	Net margin	3.9%	10.4%	7.7%	13.7%	15.0%	14.4%	13.0%	13.3%	13.2%
Capital expenditures		257	288	545			5,700			5,700
Depreciation		1,404	1,468	2,872			3,300			3,300
R&D expense		844	963	1,807			2,300			2,300
Factors driving OP change YoY		+62	+1,803	+2,193			+6,227			+4,227
	Higher sales	-263	+2,722	+2,459			+10,250			+7,650
	Change in contribution margins	-30	-38	-68			+477			-73
	Higher fixed manufacturing costs and other costs	+384	-78	+306			-2,700			-1,850
	Higher SG&A expenses	-29	-475	-504			-1,800			-1,500

Source: Shared Research based on company data

Overview of company forecast

HDSI revised down its FY03/22 company forecast based on 1H results. The revised forecast is as follows:

Sales: JPY56.5bn (+52.6% YoY; versus previous forecast of JPY58.0bn)
Operating profit: JPY8.2bn (about 9.5x YoY; versus previous forecast of JPY9.5bn)
Recurring profit: JPY8.2bn (about 6.0x YoY; versus previous forecast of JPY9.5bn)
Net income: JPY5.5bn (about 8.3x YoY; versus previous forecast of JPY6.6bn)
EPS of JPY57.1

The company also forecasts a year-end dividend of JPY10.0 per share (unchanged from previous forecast), for a total annual dividend of JPY20.0 per share (unchanged).

The company had revised its forecast upward when announcing Q1 results, but then revised down its forecast when reporting Q2 results, citing auto sector production cuts resulting from semiconductor shortages and an accompanying decline in sales for automotive applications as the main reason. The company noted, though, that demand from SPE and industrial robot makers is still strong. The downwardly revised forecast remains higher than the initial company forecast issued in May 2021.

HDSI announced revisions to its full-year forecast on the day it released 1H FY03/22 results. The comments below date from before this revision, and Shared Research plans to update this report following contact with the company.

Overview of company forecast

HDSI has revised its previous company forecast upward based on Q1 results and current order trends. The revised forecast is as follows:

Sales: JPY58.0bn (+56.6% YoY)
Operating profit: JPY9.5bn (about 11.0x of FY03/21 figure), with an OPM of 16.4%
Recurring profit: JPY9.5bn (about 7.0x of FY03/21 figure)
Net income attributable to owners of parent: JPY6.6bn (about 10.0x of FY03/21 figure)

The expected EPS is still JPY68.56. The annual dividend forecast remains unchanged at 20.0 yen per share, with a payout ratio of 29.2% (Shared Research estimate).

The previous forecast was for sales of JPY52.0bn, operating profit of JPY6.6bn (OPM of 12.7%), recurring profit of JPY6.7bn, and net profit of JPY4.7bn. At the May 2021 results meeting, the company expressed confidence in meeting the targets of its FY03/22 forecast, given their conservative estimates and the current level of order recovery. As such, although the upward revision itself was anticipated, the company made it at the time of Q1 results just three months into the new fiscal year.

The main reason for the upward revision was that HDSI raised its sales forecast for Q2 onward on the back of higher-than-expected orders, especially for reducers. The company revised its annual sales forecast upward by JPY6.0bn, of which JPY1.0bn was for 1H; it revised its 2H sales forecast upward by JPY5.0bn, leading to an upward revision in operating profit as well.

Parent company earnings forecast

The parent company (HDSI) accounted for 65.5% of sales in FY03/21, representing the largest share of consolidated earnings. The parent earnings forecast is as follows:

Sales: JPY43.0bn (+77.2% YoY)
Operating profit: JPY8.8bn (about 3.4x of FY03/21 figure)
Recurring profit: JPY8.8bn (about 3.2x of FY03/21 figure)
Net income: JPY6.2bn (about 3.3x of FY03/21 figure)

The company revised its parent earnings forecast upward at the time of reporting Q1 results, just as it had for its consolidated earnings forecast. The previous forecast was for sales of JPY38.0bn, operating profit of JPY6.8bn, recurring profit of JPY6.8bn, and net profit of JPY5.0bn. The reason for the upward revision, as with the consolidated results, was a rise in HDSI's sales along with increased orders, primarily for reducers.

The parent company operating profit forecast of JPY8.8bn is an increase of JPY6.2bn YoY. This breaks down to impact of sales growth +JPY10.3bn, change in marginal profit ratio +JPY477mn (mainly due to changes in product and customer mix), -JPY2.7bn from higher fixed manufacturing costs (personnel expenses on bigger production worker payroll and depreciation due to expanded automated line), and -JPY1.8bn from higher SG&A expenses (R&D and personnel).

Ratio of consolidated-to-parent profit recovers to 1.0x

Due to the company’s upward revision of its full-year forecast based on Q1 results, the consolidated-to-parent profit ratio, including operating profit, exceeded 1.0x.

Forecast for operating profit after upward revision: Consolidated profit of JPY9.5bn, parent profit of JPY8.8bn (consolidated-to-parent profit ratio of 1.08x)
Previous forecast for operating profit: Consolidated profit of JPY6.6bn, and parent profit of JPY6.8bn (consolidated-to-parent profit ratio of 0.97x)
Operating profit for FY03/21: Consolidated profit of JPY865mn, and parent profit of JPY2.6bn (consolidated-to-parent profit ratio of 0.34x)

In FY03/20 and FY03/21 the company experienced a rapid deterioration in business performance as a result of trade friction between the US and China. Due to sluggish earnings at subsidiaries in Japan and overseas, and the burden of goodwill amortization (goodwill amortization of JPY2.4bn is expected in FY03/22), consolidated operating profit was lower than parent operating profit.

However, as with the non-consolidated results, in FY03/22 the company expects the consolidated-to-parent operating profit ratio to exceed 1.0x for the first time in three fiscal years, thanks to a recovery in earnings at domestic and overseas subsidiaries in the US and Germany. Besides the rise in reducer sales, this is due to the initial effects of profitability boosting measures such as cost reductions and increased efficiency at subsidiaries that were implemented in the wake of the aforementioned decline in performance. While a goodwill amortization burden remains, the more pronounced recovery of consolidated results versus parent results is the most significant feature of the company's forecast for FY03/22.

Company order assumptions

HDSI's initial forecast in May 2021 was based on the assumption that parent orders would amount to JPY10.0bn each quarter throughout FY03/22. Orders received in Q4 FY03/21 (January-March 2021) amounted to JPY12.9bn. According to the company's analysis, these results included orders to build up robot-related inventory to accelerate delivery times in response to demand from customers in the robot manufacturing industry. They also included orders based on the assumption that customers would prioritize the reliable procurement of the company's products and that production plans would eventually be revised accordingly. The analysis further found that demand related to smartphone building robots would run its course over the summer. In other words, the company based its JYP10.0bn quarterly figure on Q4 FY03/21 orders having exceeded actual demand.

However, Q1 FY03/22 orders reached a quarterly record high of JPY18.4bn, and HDSI expects that level to continue through Q2 and beyond. In response to this situation, the company made an early upward revision of its Q1 forecast, but has not released specific figures. This is due to the difficulty in establishing a clear outlook for orders in and after Q2, as well as concerns about longer lead times as a result of the increase in order backlogs. Shared Research understands the company will announce a more specific order forecast along with its Q2 results, while reviewing the upwardly revised forecast from Q1.

Operating profit margin outlook

The upwardly revised OPM from the company plan was 16.4%, +3.7pp from 12.7% in the initial plan. The initial forecast was about half of the 25.5% five-year average between FY03/15 and FY3/19. The initial figure was based on consideration from an increase in personnel for planned boosts in production capacity, start-up costs associated with the full-scale operation of new plants in Japan and the US, and a rise in fixed costs such as R&D investment. A decline in profitability due to the competitive market environment was not a factor. With the upward revision of Q1 results, the company is on track to achieve profit margin projection of the second year (FY03/23) of medium-term plan, one year ahead of schedule. It has not yet announced specific targets for FY03/23.

Having said that, it will take reasonable amount of time for the company to increase its workforce to prepare for increased production capacity, and it will also incur start-up cost associated with new plant and R&D expenses as planned. As a result, the company believes it is unlikely that the operating profit margin of more than 20% which was expected during the final year of the medium-term management plan (FY03/24) will be achieved in FY03/22, two years ahead of schedule. However, if robot and semiconductor production equipment manufacturers accelerate their production schedules from FY03/23 onward, the company will reconsider investing in production capacity, which was not part of its medium-term plan. Although HDSI left its plan for capital expenditure unchanged in the Q1 results, Shared Research believes it may upwardly revise this when Q2 results are released.

The company maintained its initial FY03/22 forecast for capital expenditures, depreciation, and R&D expenses as follows:

Capital investment: JPY5.7bn (FY03/21 result: JPY545mn)
Depreciation: JPY3.3bn (FY03/21 result: JPY2.9bn)
R&D expenses: JPY2.3bn (FY03/21 result: JPY1.8mn)

Geographical segments

By segment			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)			Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Est.
Sales			18,131	21,084	25,951	28,278	30,069	54,340	67,809	37,488	37,034	58,000
	YoY		-10.1%	16.3%	23.1%	9.0%	6.3%	80.7%	24.8%	-44.7%	-1.2%	56.6%
	Japan		15,362	17,899	22,534	23,428	25,495	35,351	45,327	18,613	22,114	-
		YoY	-10.3%	16.5%	25.9%	4.0%	8.8%	38.7%	28.2%	-58.9%	18.8%	-
	North America		2,769	3,184	3,417	4,850	4,575	5,482	6,814	6,241	5,145	-
		YoY	-8.6%	15.0%	7.3%	41.9%	-5.7%	19.8%	24.3%	-8.4%	-17.6%	-
	Europe		-	-	-	-	-	13,507	15,668	12,635	9,776	-
		YoY	-	-	-	-	-	-	16.0%	-19.4%	-22.6%	-
Recurring profit			3,576	4,823	7,525	7,830	7,959	11,946	17,185	236	1,367	9,500
	YoY		-18.7%	34.9%	56.0%	4.0%	1.6%	50.1%	43.9%	-98.6%	478.2%	595.1%
	Recurring profit margin		19.7%	22.9%	29.0%	27.7%	26.5%	22.0%	25.3%	0.6%	3.7%	16.4%
	Japan		4,134	5,523	8,076	8,570	8,878	13,909	17,298	2,488	4,809
		YoY	-13.1%	33.6%	46.2%	6.1%	3.6%	56.7%	24.4%	-85.6%	93.3%
		Recurring profit margin	26.9%	30.9%	35.8%	36.6%	34.8%	39.3%	38.2%	13.4%	21.7%
		% of total	115.6%	114.5%	107.3%	109.5%	111.5%	116.4%	100.7%	1,052.6%	351.9%
	North America		295	270	365	786	705	678	1,375	955	310
		YoY	-36.5%	-8.4%	35.3%	115.5%	-10.3%	-3.8%	102.8%	-30.6%	-67.5%
		Recurring profit margin	10.6%	8.5%	10.7%	16.2%	15.4%	12.4%	20.2%	15.3%	6.0%
		% of total	8.2%	5.6%	4.8%	10.0%	8.9%	5.7%	8.0%	403.8%	22.7%
	Europe		110	100	279	51	135	554	1,750	-800	-921
		YoY	40.9%	-9.6%	179.7%	-81.7%	163.8%	310.5%	215.8%	-	-
		Recurring profit margin						4.1%	11.2%	-6.3%	-9.4%
		% of total	3.1%	2.1%	3.7%	0.7%	1.7%	4.6%	10.2%	-338.6%	-67.4%
	Adjustments		-963	-1,070	-1,195	-1,578	-1,759	-2,913	-2,959	-2,406	-2,832

Source: Shared Research based on company data

Key group company earnings

Main group companies		FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)		Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Act.	Est.
US subsidiaries		2,768	3,184	3,417	4,850	4,576	5,509	6,856	6,258	5,150	6,600
	YoY	-8.6%	15.0%	7.3%	41.9%	-5.6%	20.4%	24.5%	-8.7%	-17.7%	28.2%
Net income		107	130	128	269	242	241	494	364	163	630
	YoY	-29.6%	21.5%	-1.5%	110.2%	-10.0%	-0.4%	105.0%	-26.3%	-55.2%	286.5%
	Net margin	3.9%	4.1%	3.7%	5.5%	5.3%	4.4%	7.2%	5.8%	3.2%	9.5%
Harmonic AD		1,726	1,887	2,102	2,241	2,377	2,781	3,371	1,779	1,706	2,700
	YoY	-14.9%	9.3%	11.4%	6.6%	6.1%	17.0%	21.2%	-47.2%	-4.1%	58.3%
Net income		41	54	97	141	142	245	362	14	34	270
	YoY	-39.7%	31.7%	79.6%	45.4%	0.7%	72.5%	47.8%	-96.1%	142.9%	694.1%
	Net margin	2.4%	2.9%	4.6%	6.3%	6.0%	8.8%	10.7%	0.8%	2.0%	10.0%
China subsidiary				1,596	2,582	2,257	4,644	4,048	3,330	2,385	4,000
	YoY			-	61.8%	-12.6%	105.8%	-12.8%	-17.7%	-28.4%	67.7%
Net income				245	306	-36	281	194	199	104	250
	YoY			-	24.9%	-	-	-31.0%	2.6%	-47.7%	140.4%
	Net margin			15.4%	11.9%	-1.6%	6.1%	4.8%	6.0%	4.4%	6.3%
Harmonic Drive SE		6,348	7,829	10,030	9,933	10,208	13,623	15,952	12,744	9,818	12,400
	YoY	-18.0%	23.3%	28.1%	-1.0%	2.8%	33.5%	17.1%	-20.1%	-23.0%	26.3%
Net income		945	914	1,437	761	1,064	2,044	2,331	441	199	1,200
	YoY	10.8%	-3.3%	57.2%	-47.0%	39.8%	92.1%	14.0%	-81.1%	-54.9%	503.0%
	Net margin	14.9%	11.7%	14.3%	7.7%	10.4%	15.0%	14.6%	3.5%	2.0%	9.7%
USD/JPY		79.8	97.7	105.9	121.1	108.8	112.2	110.4	109.1	106.8	105.0
CNY/JPY		-	-	17.2	19.2	16.4	16.6	16.7	15.8	15.5	16.0
EUR/JPY		102.6	129.7	140.4	134.3	120.3	126.7	130.4	122.1	121.8	125.0

Source: Shared Research based on company data
Note: Net income of US subsidiary is after deduction of minority interests while that of Harmonic Drive SE is before deduction of minority interests.

Parent company sales by application

By application			FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)			Parent	Parent	Parent	Parent	Parent	Parent	Parent	Parent	Parent	Parent
Sales (parent)			16,159	18,585	23,030	23,741	26,748	38,982	49,249	19,788	24,264	43,000
	YoY		-10.6%	15.0%	23.9%	3.1%	12.7%	45.7%	26.3%	-59.8%	22.6%	77.2%
	Semiconductor production equipment		1,690	2,228	2,144	2,666	2,937	4,034	5,795	2,217	2,776
		YoY	-26.5%	31.8%	-3.8%	24.3%	10.2%	37.4%	43.7%	-61.7%	25.2%
		% of total	10.5%	12.0%	9.3%	11.2%	11.0%	10.4%	11.8%	11.2%	11.4%
	Flat panel display equipment		936	1,499	1,317	1,553	2,169	2,596	2,811	640	769
		YoY	-25.6%	60.1%	-12.1%